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2 Stocks to Watch From the Promising Nursing Home Industry
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The Zacks Medical-Nursing Home industry players are benefiting from the growing number of aging adults, which is driving demand for their nursing home facilities. Also, a provision for outpatient therapy, health and wellness, fitness and concierge as well as other ancillary services are aiding their business growth. Even though the companies have been grappling with a surplus supply of facilities that is weighing on its occupancy levels, the receding impact of the pandemic and increased vaccinations will ensure rising demand for nursing home players. Under these circumstances, The Ensign Group, Inc. (ENSG - Free Report) and Brookdale Senior Living Inc. (BKD - Free Report) are well poised for significant growth.
About the Industry
Companies in the Zacks Medical-Nursing Home industry provide long-term skilled nursing care and social services. The industry includes skilled nursing facilities for recovery from acute or chronic medical conditions, mental health and substance abuse facilities along with various types of independent living, community care and assisted-living arrangements. Nursing homes typically care for patients recuperating from major medical procedures and senior patients with chronic disabilities and deteriorating mental and physical capacities. A wide array of healthcare and dependent-care services is provided, including 24-hour nursing care, physical therapy, help with activities of daily living such as bathing, eating and dressing, housekeeping, food service, personal services and leisure activities. Also, some provide mobile diagnostics services, benefiting patients with low mobility.
3 Trends Defining Nursing Home Industry's Future
Aging Population Growth: The primary market of the senior living industry consists of individuals aged 80 and above. Owing to continuous advancements in science, nutrition and healthcare and demographic trends, the senior population is likely to keep rising. The U.S. Census projections suggest that starting 2022, there will be nearly 1 million new potential residents per year. By 2030, 21% of the population is expected to age 65 years and older, up from 17% witnessed in 2020. Hence, demand for senior care is bound to increase in the future. As seniors are living longer, rapid growth in this segment of the population is expected.
This change in demographics is also expected to lead to a higher number of people suffering from Alzheimer's disease, other dementias, and the onus of other chronic diseases and conditions. As a result of increased mobility in the society, shrinking average family size and the growing number of two-wage earner couples, families struggle to provide care for seniors and therefore look for alternatives outside their familial bonds for care. There is a growing awareness among seniors and their families concerning the types of services provided by senior living operators, which can further buoy the demand for assisted living services.
Oversupplied Market: Even though construction of new senior living communities slowed down in 2020, the industry experienced several years of significant construction of new communities and other buildings. This resulted in excessive supply, which put downward pressure on occupancy and the rates that operators can charge for their services to their residents. Demand has also taken a hit as older adults are either raising the age limit at which they move to senior living communities or forgoing such a move entirely. Additionally, a burden on governmental budget-induced reductions or limitations in government funding growth for senior living and healthcare services, despite the increasing regulatory requirements imposed on the industry, is hurting the companies. These revenue pressures are further accompanied by increased costs for labor, insurance and regulatory compliance. Yet, the receding impact of the pandemic and improvement in technologies can somewhat help in offsetting the decline in the number of people opting to move to senior living communities.
Inorganic Growth:The oversupplied market, its fragmented nature and the ongoing economic recovery have created the opportunity for mergers and acquisitions (M&A) in the nursing home space. Companies looking for ways to enhance footprints, diversify operations and grow market share are likely to opt for some M&A actions, which will be supported by improved capital levels, thanks to the economic recovery. Small operators, who were badly hit amid the pandemic, are looking for big partners and organizations. This will lead to significant inorganic growth for the market players in the long term.
Zacks Industry Rank Indicates Bullish Outlook
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bright near-term prospects. The Zacks Medical-Nursing Home industry, which is housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #42, which places it at the top 17% of more than 250 Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Given the promising near-term prospects, companies in the space are expected to flourish.
Before we present a couple of stocks that you may want to buy or retain in your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, Underperforms S&P 500
The Zacks Medical-Nursing Home industry remained below the Zacks S&P 500 composite but fared better than its own sector over the past year.
The stocks in this industry have collectively increased 1.4% in the past year, while the Medical sector has declined 9%. Meanwhile, the Zacks S&P 500 composite has gained 11.8%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month Price/Earnings ratio, which is commonly used for valuing nursing home stocks, the industry is currently trading at 280.05X compared with the S&P 500’s 19.98X and the sector’s 21.26X.
Forward 12-Month Price/Earnings (P/E) Ratio
2 Stocks Worth A Closer Look
We are presenting two stocks from the Medical-Nursing Home industry. Considering the current industry scenario, it might be prudent for investors to either buy or hold these stocks in their portfolio, as these are well placed to generate long-term growth.
The Ensign Group, Inc.: Based in San Juan Capistrano, CA, Ensign provides healthcare services in the post-acute care continuum, urgent care center and mobile ancillary businesses in the United States. ENSG’s growth has been driven by its expertise in acquiring real estate or leasing post-acute care operations and transforming them into market leaders. The stock has increased 25.2% in the past six months and is expected to rise further in the coming days. Its series of buyouts and alliances poise it well for bottom-line growth.
Ensign provided its earnings projection of $4.01-$4.13 per share for the current year, indicating an increase from the 2021 level of $3.64. It anticipates annual revenues in the band of $2.93-$2.98 billion, whose mid-point indicates a 12.4% rise from the 2021 reported figure. ENSG’s earnings per share have witnessed three upward estimate revisions in the past 60 days against none in the opposite direction. The Zacks Rank #2 (Buy) company beat earnings estimates in each of the past four quarters, with the average being 1.7%.
Brookdale Senior Living Inc.: Headquartered in Brentwood, TN, Brookdale is riding on economic growth in the domestic market. It operates more than 679 senior living communities across 41 states in the country. BKD’s vast network enables it to increase wellness and provide premier healthcare for more than 60,000 residents. It has witnessed occupancy growth for the past few quarters, indicating a recovery in demand. This has boosted the stock by 14.7% in the past six months and is expected to push it even higher in the coming days.
Brookdale currently has a Zacks Rank #3 (Hold). With rising liquidity and decreasing debt level, the company’s balance sheet is expected to become stronger. The Zacks Consensus Estimate for 2022 revenues is pegged at $2.8 billion. The consensus mark for 2022 earnings indicates a 34.5% year-over-year improvement. BKD beat earnings estimates twice in the last four quarters and missed on the other two occasions, with the average surprise being 5.9%.
Price and Consensus: BKD
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2 Stocks to Watch From the Promising Nursing Home Industry
The Zacks Medical-Nursing Home industry players are benefiting from the growing number of aging adults, which is driving demand for their nursing home facilities. Also, a provision for outpatient therapy, health and wellness, fitness and concierge as well as other ancillary services are aiding their business growth. Even though the companies have been grappling with a surplus supply of facilities that is weighing on its occupancy levels, the receding impact of the pandemic and increased vaccinations will ensure rising demand for nursing home players. Under these circumstances, The Ensign Group, Inc. (ENSG - Free Report) and Brookdale Senior Living Inc. (BKD - Free Report) are well poised for significant growth.
About the Industry
Companies in the Zacks Medical-Nursing Home industry provide long-term skilled nursing care and social services. The industry includes skilled nursing facilities for recovery from acute or chronic medical conditions, mental health and substance abuse facilities along with various types of independent living, community care and assisted-living arrangements. Nursing homes typically care for patients recuperating from major medical procedures and senior patients with chronic disabilities and deteriorating mental and physical capacities. A wide array of healthcare and dependent-care services is provided, including 24-hour nursing care, physical therapy, help with activities of daily living such as bathing, eating and dressing, housekeeping, food service, personal services and leisure activities. Also, some provide mobile diagnostics services, benefiting patients with low mobility.
3 Trends Defining Nursing Home Industry's Future
Aging Population Growth: The primary market of the senior living industry consists of individuals aged 80 and above. Owing to continuous advancements in science, nutrition and healthcare and demographic trends, the senior population is likely to keep rising. The U.S. Census projections suggest that starting 2022, there will be nearly 1 million new potential residents per year. By 2030, 21% of the population is expected to age 65 years and older, up from 17% witnessed in 2020. Hence, demand for senior care is bound to increase in the future. As seniors are living longer, rapid growth in this segment of the population is expected.
This change in demographics is also expected to lead to a higher number of people suffering from Alzheimer's disease, other dementias, and the onus of other chronic diseases and conditions. As a result of increased mobility in the society, shrinking average family size and the growing number of two-wage earner couples, families struggle to provide care for seniors and therefore look for alternatives outside their familial bonds for care. There is a growing awareness among seniors and their families concerning the types of services provided by senior living operators, which can further buoy the demand for assisted living services.
Oversupplied Market: Even though construction of new senior living communities slowed down in 2020, the industry experienced several years of significant construction of new communities and other buildings. This resulted in excessive supply, which put downward pressure on occupancy and the rates that operators can charge for their services to their residents. Demand has also taken a hit as older adults are either raising the age limit at which they move to senior living communities or forgoing such a move entirely. Additionally, a burden on governmental budget-induced reductions or limitations in government funding growth for senior living and healthcare services, despite the increasing regulatory requirements imposed on the industry, is hurting the companies. These revenue pressures are further accompanied by increased costs for labor, insurance and regulatory compliance. Yet, the receding impact of the pandemic and improvement in technologies can somewhat help in offsetting the decline in the number of people opting to move to senior living communities.
Inorganic Growth:The oversupplied market, its fragmented nature and the ongoing economic recovery have created the opportunity for mergers and acquisitions (M&A) in the nursing home space. Companies looking for ways to enhance footprints, diversify operations and grow market share are likely to opt for some M&A actions, which will be supported by improved capital levels, thanks to the economic recovery. Small operators, who were badly hit amid the pandemic, are looking for big partners and organizations. This will lead to significant inorganic growth for the market players in the long term.
Zacks Industry Rank Indicates Bullish Outlook
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bright near-term prospects. The Zacks Medical-Nursing Home industry, which is housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #42, which places it at the top 17% of more than 250 Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Given the promising near-term prospects, companies in the space are expected to flourish.
Before we present a couple of stocks that you may want to buy or retain in your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, Underperforms S&P 500
The Zacks Medical-Nursing Home industry remained below the Zacks S&P 500 composite but fared better than its own sector over the past year.
The stocks in this industry have collectively increased 1.4% in the past year, while the Medical sector has declined 9%. Meanwhile, the Zacks S&P 500 composite has gained 11.8%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month Price/Earnings ratio, which is commonly used for valuing nursing home stocks, the industry is currently trading at 280.05X compared with the S&P 500’s 19.98X and the sector’s 21.26X.
Forward 12-Month Price/Earnings (P/E) Ratio
2 Stocks Worth A Closer Look
We are presenting two stocks from the Medical-Nursing Home industry. Considering the current industry scenario, it might be prudent for investors to either buy or hold these stocks in their portfolio, as these are well placed to generate long-term growth.
The Ensign Group, Inc.: Based in San Juan Capistrano, CA, Ensign provides healthcare services in the post-acute care continuum, urgent care center and mobile ancillary businesses in the United States. ENSG’s growth has been driven by its expertise in acquiring real estate or leasing post-acute care operations and transforming them into market leaders. The stock has increased 25.2% in the past six months and is expected to rise further in the coming days. Its series of buyouts and alliances poise it well for bottom-line growth.
Ensign provided its earnings projection of $4.01-$4.13 per share for the current year, indicating an increase from the 2021 level of $3.64. It anticipates annual revenues in the band of $2.93-$2.98 billion, whose mid-point indicates a 12.4% rise from the 2021 reported figure. ENSG’s earnings per share have witnessed three upward estimate revisions in the past 60 days against none in the opposite direction. The Zacks Rank #2 (Buy) company beat earnings estimates in each of the past four quarters, with the average being 1.7%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: ENSG
Brookdale Senior Living Inc.: Headquartered in Brentwood, TN, Brookdale is riding on economic growth in the domestic market. It operates more than 679 senior living communities across 41 states in the country. BKD’s vast network enables it to increase wellness and provide premier healthcare for more than 60,000 residents. It has witnessed occupancy growth for the past few quarters, indicating a recovery in demand. This has boosted the stock by 14.7% in the past six months and is expected to push it even higher in the coming days.
Brookdale currently has a Zacks Rank #3 (Hold). With rising liquidity and decreasing debt level, the company’s balance sheet is expected to become stronger. The Zacks Consensus Estimate for 2022 revenues is pegged at $2.8 billion. The consensus mark for 2022 earnings indicates a 34.5% year-over-year improvement. BKD beat earnings estimates twice in the last four quarters and missed on the other two occasions, with the average surprise being 5.9%.
Price and Consensus: BKD